The dollar has continued to weaken versus most other currencies, correlating with the sharp decline in U.S. Treasury yields. The 10-year T-note yield looks to be on a fast track to catch up with the likes of Bunds and JGB in the negative yielding club, having today printed a fresh record low of 0.815%, dropping some 35 bps since Tuesday, and markedly narrowing the dollar's yield advantage relative to its main peers. The 10-year T-note over 10-year Bund yield spread, for instance, has narrowed sharply, to about 154 bp now from a spread of about 200 bp in little over three weeks. The USD index (DXY) earlier printed a fresh two-month low at 96.51, extending a decline from the 35-month high that was seen on February 20th, at 99.91. EUR-USD has concurrently posted a seven-month peak, at 1.1248, which is the new culmination of the biggest two-week gain the pair has seen since February 2016. USD-JPY has been undermined by both dollar weakness and concurrent safe-haven driven outperformance in the yen, and fell to a six-month low at 105.75. EUR-JPY and other yen crosses also printed fresh lows. AUD-JPY posted a four-day low, and is nearing the 11-year low the cross saw last week. AUD-USD has remained relatively buoyant, holding above recent 11-year lows on the back of the U.S. dollar's weakness. The COVID-19 virus, while having so far disrupted some other economies more than the U.S. (China, Japan and South Korea, for instance), is proving to be a leveller of the hitherto relatively robust U.S. economy, with several states (California, Washington and Maryland) now having declared a state of emergency.

[EUR, USD]EUR-USD has printed a seven-month peak at 1.1248, which is the new culmination of the biggest two-week gain the pair has seen since February 2016. Dollar weakness has been driving, correlating with the sharp decline in U.S. Treasury yields. The 10-year T-note yield looks to be on a fast track to catch up with the likes of Bunds and JGB in the negative yielding club, having today printed a fresh record low of 0.815%, dropping some 35 bps since Tuesday, and markedly narrowing the dollar's yield advantage relative to its main peers. The 10-year T-note over 10-year Bund yield spread has narrowed sharply, to about 154 bp now from a spread of about 200 bp in little over three weeks. The USD index (DXY) today posted a fresh two-month low at 96.51, extending a decline from the 35-month high that was seen on February 20th, at 99.91. The COVID-19 virus, while having so far disrupted some other economies more than the U.S. (China, Japan, South Korea and Italy), is proving to be a leveller of the hitherto relatively robust U.S. economy, with several states (California, Washington and Maryland) now having declared a state of emergency. We expect further upside in EUR-USD on the basis that Treasury yields have a greater height to fall from than do Bund yields.

[USD, JPY]USD-JPY has been undermined by both dollar weakness and concurrent safe-haven driven outperformance in the yen. The has fallen to a six-month low at 105.75. EUR-JPY and other yen crosses also printed fresh lows. AUD-JPY posted a four-day low, and is nearing the 11-year low the cross saw last week. The COVID-19 virus, while having so far disrupted some other economies more than the U.S. (China, Japan and South Korea, for instance), is proving to be a leveller of the hitherto relatively robust U.S. economy, with several states (California, Washington and Maryland) now having declared a state of emergency. BoJ Governor Kuroda said this week that the central bank would take necessary steps to stabilise markets. Japan's February manufacturing PMI, released on Monday, fell back to 47.8 from 48.2, indicating continued contraction in the sector. Ahead, the yen will likely remain prone to bouts of safe-haven driven outperformance until markets have clarity that the peak of the COVID-19 virus spread has come and gone. There is some scientific conjecture that the virus will weaken with time, possibility aided by the improving weather in the northern hemisphere.

[GBP, USD]The pound has found a better footing this week after incoming BoE Governor, Andrew Bailey, who will take over from Carney on March 16th, said during parliamentary testimony that, with regard to the coronavirus, "what we need is frankly more evidence than we have at the moment as to exactly how this is feeding through." Bailey was careful not to rule out any policy response, even an in-between meeting emergency move, but clearly his message was measured. He also said that, "we are going to have to provide some form of supply chain finance in the not very distant future to assure that the effects of this shock from the virus are not damaging ... particularly to small and medium sized firms." Regarding Brexit, Bailey said, "my strong view is we should do all we can to get a free trade agreement with the EU and not fall back on the WTO." On the year-to-date, the pound is still showing a an average loss of about 3% to the dollar, euro and yen, despite the prevailing rebound. The UK this week commenced trade negotiations with both the EU and U.S., but markets are pricing-in a risk of the UK leaving the end of the post-Brexit transition period at the end of the year without a new trading deal with the EU and shifting to less favourable WTO trading terms.

[USD, CHF]EUR-CHF dropped back towards the five-year low that was seen last week at. 1.0585, reflecting safe haven demand for the Swiss currency as concerns rise about the global economic disruptions being caused by efforts to contain the COVID-19 virus. The U.S. in January added Switzerland to its list of currency manipulators. The move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy.

[USD, CAD]USD-CAD has remained buoyant following the BoC's 50 bp rate cut this week, along with oil prices coming back under pressure despite the OPEC decision to trim crude supply. The pair looks set for a retest of the nine-month high seen last week at 1.3464, which was the culmination of a rally from the sub-1.3000 levels that were seen in early January. The Canadian currency will likely remain subject to near-term volatility and overall underperformance as long as the coronavirus contagion remains in a state of increasing spread.